Vodafone pays $5 bn to buy out India partner Essar

British phone giant Vodafone said Thursday it had paid $5 billion to buy out its Indian partner Essar in their mobile phone venture, snapping an increasingly strained relationship, AFP reports.

The sale came after differences between the partners had become more public in recent months on the valuation of their joint venture, which they had hoped would allow them to exploit India's booming mobile phone market.

Vodafone's pact with the Essar Group gave the Indian firm an option to sell its stake to the British-based company for $5 billion that expired in May.

The deal will result "in a total cash payment of $5 billion" to the Essar Group and "final settlement is anticipated to be no later than November 2011," Vodafone said in a statement.

Vodafone said the Essar Group, founded by billionaires Shashi and Ravi Ruia, had exercised its option to sell its stake in Vodafone Essar, as India's third-largest mobile phone company is known.

The deal will give Vodafone 75 percent control of Vodafone Essar.

This amount is one percent above the 74 percent cap that foreign companies are allowed to hold in Indian telecommunications firms, meaning Vodafone will have to slightly reduce its stake.

Vodafone, based in Newbury, England, bought a 67 percent stake in Hutchison Essar, as the company was then known, for $11.1 billion in 2007 as it sought to make India a crown jewel in its expanding emerging markets portfolio.

Vodafone's foreign investment remains the largest to date in India.

The British company said the deal to buy Essar's stake would not affect its financial accounts as the $5 billion had already been included in Vodafone's net debt.

Relations between the British and Indian firms had grown increasingly tense after Essar and Vodafone had sought to find a compromise on the valuation of their joint venture with Essar seeking a higher worth.

Vodafone has had a rough ride with its investment in India amid intense competition in the world's fastest-growing mobile market which has more than 770 million cellular subscribers.

It wrote off 2.3 billion pounds (3.7 billion dollars) in 2010, citing the ferocious rivalry among the myriad players in the Indian market that has driven call costs to below one cent a minute and rising spectrum charges.

Vodafone is also fighting a massive Indian tax bill stemming from its purchase of Hutchison Essar.